A Housing Cooperative as an Alternative to a Mortgage: Lessons from Ten Years of Practice

An Op-Ed for an Entrepreneurial Forum

Roman Vasilenko, Doctor of Economics, President of the International Business Academy (IBA)

In 2014, I began working on a project in the field of housing cooperatives that would later become an important part of my professional life. Over the course of a decade, tens of thousands of people have gone through the cooperative model. I have seen how it has developed in different regions, what opportunities it creates for its members, and what challenges it faces in practice.

Today, I would like to share the practical conclusions I have drawn. This is not about promoting a particular organization or arguing that cooperatives can replace every existing way of purchasing a home. Rather, it is about understanding what role this model can realistically play in the Russian housing market.

My conclusion after ten years is quite clear: housing cooperatives have potential. But that potential can only be realized if the rules governing the model develop alongside it.

Why Traditional Mortgages Are Not Enough

For most families, owning an apartment is more than simply purchasing property. It is a decision that determines their financial burden for many years.

Today, the most familiar route is a mortgage. A potential buyer first saves for a down payment, then approaches a bank, provides proof of income, and takes on financial obligations for 15, 20, or even 25 years.

The problem is that the final cost can differ substantially from the original price of the apartment. With long-term borrowing, a significant portion of the payments goes toward interest. As a result, a home purchased for a certain amount can ultimately cost a family considerably more.

Moreover, a mortgage is not accessible to everyone. A person may not have the required down payment, a sufficient level of official income, or an adequate credit history. For some people, age or unstable employment can also become a barrier.

This creates a paradoxical situation: a person may need housing and may even have the ability to save money regularly, yet still be unable to use a banking product to purchase a home.

The cooperative system emerged as one possible response to this problem.

How the Collective Financing Principle Works

The cooperative is based on a fairly straightforward idea: instead of each person individually applying for a loan, a group of participants pools its financial resources.

The shared system makes it possible to purchase homes for individual members. The mechanism then continues to work for the next participants.

A person who has received an apartment does not stop fulfilling their obligations. They continue making the required payments, allowing the collective system to accumulate resources to address the housing needs of other members.

The key difference from the banking model is the absence of a conventional interest-bearing loan as the primary source of financing. With a traditional mortgage, the customer pays the bank for the use of borrowed funds. In a cooperative, financial resources are organized around a collective goal and circulate within the association itself.

This is precisely what makes the model attractive to people looking for an alternative to long-term bank debt.

Cooperatives Have Long Existed Beyond Russia

It is sometimes suggested that housing cooperatives are an unusual or experimental form of housing organization. International experience suggests otherwise.

In Switzerland, cooperatives play a significant role in the housing sector, particularly in Zurich. Cooperative structures also account for a substantial share of the housing stock in Austria. Such associations also have a strong presence in Sweden.

In Germany, savings-based models associated with home purchasing have a history spanning more than a century. Over time, they have become a familiar financial instrument for millions of people.

Latin America has accumulated considerable experience as well. In Uruguay and Brazil, housing cooperatives have developed into established social institutions that perform not only an economic but also a social function.

Russia also has its own history of collective housing construction. During the Soviet period, housing construction cooperatives became one of the ways people could acquire apartments and accounted for part of the new housing stock.

After the transition to a market economy, the conditions changed, but the idea of collectively addressing housing needs remained.

Therefore, modern Russian cooperatives should not be viewed as an invention of recent years, but rather as an adaptation of a long-established principle to a new economic reality.

What Practice Has Shown

Over ten years, I have become convinced that the cooperative model does have significant strengths.

A Lower Financial Barrier

The first advantage is the possibility of joining without facing the same high initial financial barrier found in a traditional mortgage.

For a bank, verified income, a down payment, and compliance with established eligibility criteria are all important. If even one of these factors does not meet the requirements, obtaining a loan can be difficult.

In a cooperative, a person can build up their share gradually. This broadens the pool of potential participants and makes the model attractive to people who do not have a large amount of money available at the outset.

Savings on Interest Costs

The second advantage is a fundamentally different payment structure.

Consider a hypothetical example. An apartment costs 8 million rubles. If a person takes out a 20-year mortgage at an annual interest rate of 12%, the total payments will be significantly higher than the original price of the property and could approach 21 million rubles.

In other words, the family pays not only for the apartment but also for the long-term use of the bank’s capital.

The cooperative approach eliminates conventional bank interest charges. This can substantially change the economics of purchasing a home.

A Community Instead of a “Bank–Customer” Relationship

There is also a third factor that is more difficult to express in numbers.

A cooperative brings people together around a common goal. A member understands that their contributions are connected to the housing needs of other members, while the collective system, in turn, is intended to help resolve their own housing needs.

This creates a different type of relationship. Openness, shared responsibility, and trust are particularly important for the system to work successfully.

Risks That Cannot Be Ignored

Every financial model has limitations. Housing cooperatives are no exception.

Regulatory Gaps

The first problem is insufficiently detailed regulation.

General rules for consumer cooperatives exist, but the specific nature of housing-related activities requires a more precise approach. As long as the regulatory boundaries remain insufficiently clear, there is a risk that the rules will be interpreted differently by different participants.

It is particularly concerning that unscrupulous organizations may use the term “cooperative” to create the appearance of legitimate and transparent operations.

As a result, problems involving individual players can come to be perceived as shortcomings of the entire model.

The Need for a Constant Inflow of New Members

The second issue is related to the internal economics of a dynamic cooperative.

The system relies on funds circulating among members and on housing needs being addressed sequentially. Therefore, maintaining a stable inflow of new members is important.

If the number of new participants decreases significantly, the progress of subsequent members may slow down. The queue may become longer, and the time required to obtain housing may increase.

This is a fundamental point that must be explained to a person before they join. A cooperative model should not be presented as a mechanism for solving a person’s housing needs instantly.

Professional Management

The third issue is management.

Banks operate under complex systems of oversight and control. Cooperatives have greater freedom, but that freedom means they must create effective risk-management mechanisms themselves.

A large organization needs regular audits, clear financial reporting, operational controls, and ongoing communication with its members.

I am convinced that these requirements should not be treated as a formality, but as the foundation of trust.

What Is Needed for Further Development

Russia’s housing cooperative sector needs more mature infrastructure.

First and foremost, specialized rules for housing consumer cooperatives should be developed. The law should clearly define permissible operating mechanisms and the responsibilities of the participants.

The second priority is maximum financial transparency. Members should have access to information about the cooperative’s financial condition and the movement of funds rather than learning about its situation solely through general statements from management.

The third issue is the protection of members’ savings. In the future, it would be worth considering insurance for members’ contributions or the establishment of a special guarantee fund.

Finally, the sector needs professional standards. Legitimate market participants should have an interest in ensuring that requirements for auditing, reporting, management, and disclosure are consistent and clearly understood.

If the professional community can develop such standards independently, this will be an important step toward strengthening trust in the sector.

Not a Replacement for Mortgages, but an Additional Tool

I do not view the cooperative system as an attempt to eliminate mortgages. That would be incorrect.

Bank lending will remain in demand where a person meets the requirements of a financial institution and is prepared to take on a long-term debt burden.

A cooperative, by contrast, may serve a different category of people—those for whom the banking model is inaccessible, inconvenient, or economically unsuitable.

Therefore, it is more accurate to speak not of a competition between two systems, but of expanding the range of options available to citizens.

The Main Lesson of a Decade

After ten years, I have become completely convinced of one thing: no organizational model becomes successful simply because it has an attractive concept.

Housing cooperatives can give people additional opportunities, lower financial barriers, and create a mechanism for collectively addressing housing needs. But their sustainability depends on the quality of management.

Clear rules, transparent reporting, financial discipline, oversight, and management accountability are essential. These requirements must apply equally to everyone involved in the system, without exception.

This is the main lesson I see for entrepreneurs who want to develop socially oriented businesses. When a business deals with people’s money and essential needs, trust cannot be built on promises alone. It is earned through the consistent application of rules every day.

Housing cooperatives have potential. But their future will depend less on how attractive the idea itself is and more on how mature, transparent, and responsible its implementation becomes.